We suspected that our readers might be interested in some of the remarks that Mr Botín made today during the IV International Banking Conference in Boadilla del Monte, so here you are a few highlights to discuss.
On economic cycles: “This crisis reminds us of a number of things: cycles are not a thing of the past, liquidity is not always abundant and cheap and at times it can even disappear, financial products help to spread and diversify risk but they do not eliminate it completely, we live in an interconnected economy that requires the co-ordination of economic and financial policies as well as intense and on-going supervision of global imbalances, and finally, that the Eurozone requires greater political and monetary integration in order to ensure the stability of the euro.”
On the Too Big To Fail argument: “Much progress has been made in relation to the Basel Committee’s proposal to identify and deal with systemic entities. Significantly, the proposal now recognises that size is not the only variable that determines systemic risk and that in fact, complexity and interconnection between entities are also important elements of systemic risk.”
On protecting the public purse: “The second area where we are anticipating agreement at the next G20 summary is on frameworks for prevention and orderly failure during banking crises. It is fundamental that any institution should be able to fail, in such a way that it can leave the market without generating systemic risk and without the need for recourse to public funds.”
On Santander banking model: “Banco Santander was the first bank to deliver a living will to its Central Bank – in April last year. We were able to do so thanks to the simplicity and transparency of our business model, and to the structure of our subsidiaries that are autonomous in terms of capital and liquidity. The crisis has shown that subsidiary models –such as those used by Banco Santander– allow for an effective assignment of incentives to local administrative teams on a day-to-day basis, which have to independently obtain financing and capital for their activities, as well as put in place systems of solid corporate governance, and very clear firebreaks in the event of crisis, limiting the contagion of financial problems between the various entities within international groups; greater capital flexibility at the group level by requiring subsidiaries to have independent capital quoted
on the stock exchange.”
On definitions of toxic assets and liquidity ratios: “There are still great differences between the computation of risk-weighted assets between countries, which cause harm to entities with large capital holdings and low-risk business models, such as Banco Santander amongst others; the second relevant issue that remains unresolved is the definition of liquidity ratios. As they are defined at the moment, they damage retail banking, introduce significant risks of a contraction of credit portfolios, and in some cases, constrain the banking sector’s maturity transformation role.”
On regulatory fragmentation: “Some countries are starting to impose unilaterally on entities within their jurisdiction. In our opinion, priority must be given to implementing the new global rules in a co-ordinated and homogeneous manner, before adding new layers of local regulation. A clear example of a positive effort that has been made to reach a greater level of regulatory and supervisory co-ordination between countries is the implementation of the new European Banking Authority… The risk of fragmenting the system through significant regulatory variations at the national level may particularly disadvantage the European financial sector when compared to other areas or countries, such as the US. In this respect, a good example is the proposal to set up a levy on financial transactions only in Europe.
On retail banks’ role: “I said last year that there is no healthy economy without healthy banks. Banks play a fundamental role in financial intermediation, channelling capital from savers to the most profitable investment projects, and managing and protecting the system of payments. To that end, it is essential that the new standards should not harm retail banks. By taking deposits and granting loans, retail banking is a key engine of economic growth.”
On new rules: “Now is the time to take a break in the regulatory processes… it is important to remember that to resolve all the problems that currently affect the financial sector and the world economy, it is not enough to embark upon reforms and take measures only in the banking sector.”
On recapitalisation and public debt: “Casting doubt in a general manner on the sustainability of public debt or of the European financial system may bring us to a ceaseless downward spiral of sovereign debt and banking crises. It is possible that some institutions that are particularly affected by the Greek public-debt crisis or by the market-debt crisis in general, may require more capital. However, there should not be obligatory, indiscriminate recapitalisation of European banks without resolving the problem of public debt once and for all.”